S & P - Two Sides To Every Market. Take Nothing For Granted.

Dec. 1, 2010 12:35 AM ET

Tuesday Evening 30 November 2010

The focus today will be narrow and simple. We have been anticipating an eventual breakdown lower and discussed the trading range, [See S & P - Go To The Mattresses!, click on http://bit.ly/fqbUw0, last few paragraphs after second chart, and third chart with comments,]. You can see that the intra day rallies have been showing lower highs over the past few weeks, an indication that the demand has weakened. We even stated a potential objective at 1120 - 1125.

On the 60 minute chart, we show two important elements in the form of price and volume, the key factors behind all moves. After 11 days of trading sideways, we know that price is moving further along the Right Hand Side, [RHS], of the trading range, and that means a resolve is getting closer.

The chart shows overnight activity from Monday, but on the day session open, price gapped lower, near support and on strong volume. Tuesday's volume was the highest since 16 November. The importance of volume is a measure of effort expended. The greater the volume, the more exchange going on between buyers and sellers. The question then is, what was the reward for all that effort? Did it favor sellers or buyers?

For all of the effort, price held above yesterday's lows. The highest intra day volume came near the close, a time when smart money makes a move. That volume bar is red, second from the end, yetprice did not trade below the half-way point of the initial two 60 minute high volume up bars at the opening of the day session. Why couldn't sellers make greater headway at such a critical area?

This is why we say every market has two sides, and nothing can be taken for granted, including our downside 1125 area objective. This trading range has all of the elements of weakness, of late, yet today could lead to a surprise on Wednesday.

If today's developing market activity is sending a message, it could be more important than most traders may realize. There would be little surprise if price fails and goes lower. If the market is able to rally on Wednesday, contrary to seeming weakness, and there is ease of upward movement on increased volume, it could change everything.

We do not know how price will develop on Wednesday, for the future has not yet happened. All we can do is judge the market's message, and it speaks most clearly through price and volume. Rather thanguess how Wednesday will develop, we will watch it closely and let the market be our guide.

The other side of an objective of 1120 - 1225, lower, is recent 1220 highs, and extending all the way up to the 1275 area. Those are the possibilities. What is not known is the probability of either event,up or down.